Priority of a registered deed over an unregistered one is defeated by fraud or collusion involving serious moral blame. Additionally, acquiring property from a fiduciary with knowledge of a prior beneficial interest creates a constructive trust under equitable principles.

Lord Maugham:-

This is an appeal from the decree of the Supreme Court of the Island of Ceylon dated 23rd October 1933, setting aside a decree of the District Judge of Kurunegala, dated 29th April 1932. The latter decree dismissed the action wherein the original plaintiff was one John de Silva Rajapakse and the original defendant was the present appellant. The original plaintiff instituted the action as long ago as 30th November 1926, for a declaration that he was entitled under a deed of gift No. 1294 of 21st

September 1908, executed in his favour when a minor aged five years by his father W. Benjamin Rajapakse (who was added as defendant in the course of the proceedings but has not appeared before this Board), to a property called Raigam-watte consisting of six specified lots of land of the aggregate extent of about 250 acres.

The problems that arise for decision in the proceedings are due to the circumstance that the added defendant whom it will be convenient to call Benjamin Rajapakse, notwithstanding the deed of gift executed by him in 1908, purported by a deed of transfer No. 5487, dated 28th September 1915, to convey the same estate to the appellant who thereupon entered into possession of the estate and was still there when the proceedings were commenced. The claim of the appellant so far as it is based on the deed of transfer from Benjamin Rajapakse, depends upon the provisions of a Registration Ordinance No. 14 of 1891 . It has been replaced by an Ordinance No. 23 of 1927 , in practically identical terms, but it is the Ordinance of 1891 which was in force at the relevant period. S. 17 of Ordinance No. 14 of 1891 was in the following terms :

Every deed, judgment, order or other instrument as aforesaid, unless so registered, shall be deemed void as against all parties claiming an adverse interest thereto on valuable consideration, by virtue of any subsequent deed, judgment, order, or other instrument which shall have been duly registered as aforesaid. Provided however, that fraud or collusion in obtaining such last mentioned deed, judgment, order, or other instrument, or in securing such prior registration, shall defeat that priority of the person claiming thereunder; and that nothing herein contained shall be deemed to give any greater effect or different construction to any deed, judgment, order, or other instrument registered in pursuance hereof save the priority hereby conferred on it.

It was contended that since the deed of gift of 1908 had not been registered at the time when the deed of transfer of 1915 was registered, namely, on 1st October 1915, the former was void as against the appellant. This conclusion would, no doubt, follow subject to the effect, if any, of the proviso that fraud or collusion in obtaining the transfer would defeat the priority of the person claiming under that document. The question whether such fraud or collusion had been established was the main question in debate in Ceylon. Another question of some importance was also raised which will have to be the subject of separate consideration, but it seems best to dispose of the question of fraud or collusion before embarking on the other question. It should be mentioned here that the District Judge arrived at a conclusion on the question of fact favourable to the appellant but that view was not taken in the Supreme Court.

Benjamin Rajapakse was a landed proprietor and planter who at different times encountered much financial trouble. He was helped by his brother in 1898. In 1901 he was insolvent with liabilities of Rs. 250,000 and he then settled with his creditors with the help of his father. In 1908 he again got into financial difficulty and it is admitted that his father then agreed to pay or settle his debts if he transferred the properties he then possessed to the children by his second marriage. Benjamin Rajapakse assented to this proposal, and as a result the deed of gift already referred to was duly executed in favour of Benjamin's son John